by Al MartinDetroit: The Post-Apocalyptic Future of American Cities?
(7-6-09) Here’s a glimpse of a Turn Key Approach to Urban Wasteland Management ™. Last week I had a chance to talk to a friend who just got back from Detroit and boy did he get an eyeful of America’s Future. After listening to him describe Detroit , it’s obvious that it has all fallen apart. First of all, there’s very little civil authority or regular civil government remaining and in operation. Almost everything has been turned over to these so-called Private Management Companies. And this is how it’s being done. They block out areas, in which 80% or more of the houses have been foreclosed on, which happens to be almost the entire city and county. They have selectively begun to bulldoze the properties which have been foreclosed on. The rest have been boarded up. Then they have turned over management of these 100 block area to private companies which have become defacto governments. They have the literal authority of “governments” and they’re paid a flat fee from the city, county or state to “manage,” as they say, a square block of this urban wasteland.
These Private Management Companies sell themselves as residual property management firms. Most of these companies, as it turns out, are in fact off-shore subsidiaries of Private Military Contractors (PMCs). They provide a catchall service. In other words, they regulate how much electrical power and natural gas flows through these areas. They also act as police force, and they act as management for local civil government.
However this Urban Wasteland Management has been pretty efficient. They want to protect what remaining wealthy areas that still exist, like Bloomfield Hills. These companies come in and effectively build large barbed wire fences, around these mostly abandoned square block areas. Some people are still living in them, by the way, even though most of them are boarded up because they’re no longer bothering to serve process through the entire foreclosure procedure. Oftentimes once the house has been taken back and is ultimately owned by the city or county or some government, they let the people stay there until it’s abandoned and then taken over by squatters. Then they’re given a 72 hour notice to leave, by this private management company – before they come in and bulldoze the house. If you’re not out, that’s it. The bulldozers run. They can bulldoze the place with you in it – with legal impunity.
So here’s the scene. Imagine a 100-square blocks in a city on a hot summer night. Only one out of every twenty streetlamps is working, and even that is low-wattage. These lamps are broken and swinging back and forth in the wind. There’s rusted out steel drums lying here and there. Pyres of burning scrapwood. In the background there are shadowy figures darting in and out of buildings, trying to salvage anything or strip the remaining buildings of anything that’s worth anything.
Since no electricity is being provided to these residents anymore, what this private management cum security company does is they bring in old water trucks. Then these water trucks are placed at certain locations during certain times. The people then totter down with their old plastic buckets and bottles to get their water.
My friend said that what Detroit looks like now, particularly at night, is like a scene that you would see five or ten years after a Third World War. Everything is bulldozed, but it’s not all collected because there’s not much left after everyone has picked it apart. They just bulldoze it, chop it up and leave it in little piles. So imagine these little smoldering piles of rubble with these low wattage street lamps that are broken swinging back and forth. And don’t forget the rusted out water trucks bringing in water for the “survivors,” what else can you call them? They also bring in food from various charitable organizations and distribute free food like Spam and week old bread etc. The residents (survivors) in order to get anything have to register with the private security company and get a card which must be presented to the authorities if you want to get any water etc.
They also provide very rudimentary medical care, which is part of their contract service, to provide Band-Aids if the need arises.
It’s all very quiet and all you hear is the howling of feral dogs in this urban wasteland scene.
Is Detroit a precursor of times to come in other American cities? As foreclosures mount and despite what the Obama Regime and the Financial Media says, the economy isn’t improving, at least not in the respect that foreclosures are still rising.
Residential foreclosure rates won’t even peak for another year. And the foreclosure debacle that is coming in commercial and industrial properties hasn’t even really begun.
Last week Fannie Mae announced that they expect the coming debacle in commercial and industrial properties is going to increase the foreclosure rate forty-fold in the next 12-18 months.
In spite of that, the Wall Street Journal is promoting REITs, writing about how the REIT market is “Hot” once again. This is what I might call Triple-Reconstituted REITS. In other words, they got busted out, raised money, then bought the same property back for 50 cents on the dollar. Then they got busted out again, raised more money, and diluted shareholder equity even further. Later they bought back the same property for 25 cents on the dollar. Then they’re busted out a third time. Then it becomes a question of how many pennies on the dollar is it ultimately worth?
Residential areas that are on the periphery of industrial areas which are also all foreclosed, shut down or burned out. A lot of the train tracks that run through these areas have already been ripped up and sold for scrap metal.
They must have security guards in hand cars driving up and down with searchlights looking for train track scavengers.
These private management companies have been given more power than the underlying governments ever had. They have become, for lack of a better word, a defacto privatized post-apocalyptic government.
This could be the template for the future of America’s cities. As the state and county governments continue to get squeezed and revenue continues to fall, they have to cut back the amount of money they’re paying these private companies. So what they’re doing instead is allowing these private companies to set up what are defacto private enterprise zones with complete governmental power. All of the aluminum and copper and other scarp metal that’s being stolen by the survivors is being bought by these outfits that are just beyond the fence and are actually owned by the privatized security/ government companies. They also act as pawnshops for anything that’s left. This is one way to subsidize what is a declining government co-payment.
As legitimate government funding for this diminishes, these outfits take on more and more power of government until they become virtual mini-dictatorships.
My friend told me that you go down the street and you see this barbed wire fence and right across the street is the border of a very wealthy area. You see all of the private security that the wealthy people have hired and the searchlights that are monitoring activity in the neighborhood. It’s similar to South America where you see the barrio or favela come right up next to a wealthy neighborhood. As foreclosures mount and government resources diminish, these Urban Wasteland Zones (UMZs) are expanding. Now these companies also hire themselves out to provide security for the remaining wealthy areas, so they have their own security patrols going up and down the street. In some cases it’s only one street that separates where the barbed wire fence stands and what they call “no man’s land” near the wealthy area.
This is evidently going on in cities all across the United States, just on a smaller and less organized scale. Now as foreclosures mount, this will become more prevalent in other cities. Detroit then is a template of what America’s future cities will look like.
Federal government has virtually given up doing anything because they don’t have the money. The states are right because all the money which was hundreds of billons that was promised them under the Bush Regime through Homeland Security grants etc. never came through and all they ever got was maybe 14 cents on the dollar. Under the Obama Regime, federal transfer payments have actually diminished because the regime doesn’t have any money.
You can point to these examples all over. Last week the State of California began paying tax refunds in promissory notes or I.O.U.’s. Many states and counties are now trying to settle obligations in promissory notes.
Looking at the bigger picture, we have entered this W-shaped economy and we are going to go into a second dip. When we are at the trough of that second dip, then it’s push-comes-to-shove time, which means that we’ll see about the Federal government’s ability to hold it all together. Why? Because state governments are in a defacto state of collapse and there’s not much that the federal government can do about it, other than to provide these financial guarantees, which allow the states to sell more bonds and municipal securities, the interest of which they don’t have the ability to service. They come with a federal guarantee, however, so if they go into default, the federal government has to assume the responsibility. What buyers of these notes don’t by and large understand about these federal guarantees is that these guarantees are only guaranteeing the principal of the bond and not the interest. In many cases, as Moody’s and Standard & Poor’s have pointed out, all these guarantees the Obama Regime is making are part of what is a reconstituted Resolution Trust situation. Many of them are only partial guarantees, maybe 60 cents on the dollar. Now many of the people who are buying these securities don’t understand that.
So what has been government’s response to declining tax revenue at state levels? To continuously increase cigarette tax to a dollar a package every six months. As prices increase, sales go down faster than the additional tax revenue is collected. All states have sold tax anticipation revenue bonds, even though none of them have sufficient revenue from increased tobacco tax to service the bonds. Republicans are now solidly behind a smoke-free America which will impinge on the American people’s right to partake of tobacco. That is the new mindset. They won’t make it illegal, but eventually it will make tobacco a privilege of the wealthy.
What will happen to the $150 billion of tobacco tax anticipation bonds states have already sold? How will that debt be serviced? None of the states have the necessary cash flow to service these tobacco and alcohol tax revenue bonds (anticipation revenue notes) because most of the states, between federal and state tax hikes, are increasing the price of liquor $1 per every proof gallon every six months.
Tobacco and liquor will become the province of the wealthy. The hoi polloi sitting on top of those piles of smoldering rubble in Detroit, trying to scrounge aluminum gutters – no more tobacco for you. You’ll be getting the corn husks from your local paramilitary government association.
When cash goes to promissory notes – what’s the next step from there? Government issued chits. Maybe they’ll look like the German money/ chits from the 1920s. They were half the size of today’s currency issued in One Billion Mark and Ten Bullion Mark denominations. But these will be corporate-issued chits. You’ll get a chit for so many gallons of water or a chit for so many hours of electricity. You can get a bag of corn-husk “tobacco” or coffee, which will be 10% coffee and 90% chickory, just like the “old days.”
So maybe we should all go long scrap lumber. Imagine the amount of scrap wood necessary to print al these promissory notes, chits and coupons… Just kidding.

* AL MARTIN is an independent economic-political analyst with 25 years of experience as a trader on NYMEX, CME, CBOT and CFTC. As a former contributor to the Presidential Council of Economic Advisors, Al Martin is considered to be a source of independent analysis for financially sophisticated and market savvy investors.

After working as a broker on Wall Street, Al Martin was involved in the so-called "Iran Contra" Affair as a fundraiser for the Bush Cabal from the covert side of government aka the US Shadow Government.

His memoir, "The Conspirators: Secrets of an Iran Contra Insider," (http://www.almartinraw.com) provides an unprecedented look at the frauds of the Bush Cabal during the Iran Contra era. His weekly column, "Behind the Scenes in the Beltway," is published weekly on Al Martin Raw.com, which also publishes a bimonthly newsletter called "Whistleblower Gazette."

Al Martin's new website "Insider Intelligence" (http://www.insiderintelligence.com) will provide a long term macro-view of world markets and how they are affected by backroom realpolitik.